Incentive Contracts for Capacity Restoration Under Risk of Supply Disruption

We consider a supply chain consisting of a supplier and a buyer. The buyer faces demand as a function of the selling price. There is risk of supply disruption, but the supplier can rebuild his capacity if he has invested for the capacity restoration before a disruption. To motivate the supplier to invest, the buyer can use one of two incentive contracts, namely null direct null and null indirect . With a direct contract, the buyer provides a...